Strategic Interactions Among Private and Public Efforts when Preventing and Stamping Out an Highly Infectious Animal Disease

David A. Hennessy, Tong Wang
October 2013 [13-WP 541]

Upon outbreak of a contagious animal disease, a primary motive for restoring disease-free status is often to regain access to international product markets. Efforts applied toward continuing or regaining such access is a public good—all growers benefit regardless of extent of private efforts taken while exclusion is impractical. Private incentives to take preventive measures and stamp-out efforts interact in complex ways. There are intra-farm temporal interactions and also inter-farm contemporaneous interactions. Public effort also takes place and interacts with private efforts. This paper provides a succinct multi-agent model to explore these interactions in social optimum and in Nash equilibrium, and also to explore how socially optimal and Nash behavior differ. Comparative statics under social optimality are more straightforward than under Nash equilibrium. Whether in social optimum or Nash equilibrium, public prevention efforts complement both private prevention and private stamp-out efforts. However, public stamp-out efforts substitute for both private stamp-out and private prevention efforts. Reasonable conditions are identified under which Nash levels of private prevention and stamp-out efforts are both below socially optimal levels. Concerning policy prescriptions, efforts to secure property rights and reduce property transfer costs should promote prevention and eradication efforts. Other things equal, public prevention effort should be more effective in promoting welfare than comparable public stamp-out effort. Subsidies on private efforts should favor prevention efforts because subsidies on eradication effort may discourage prevention effort. Even if produce from diseased animals is safe to consume and acceptable to consumers, it may be optimal to destroy such produce.